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Tamagnini (FSI): A sovereign wealth fund, Italian style

by Isabella Bufacchi

Maurizio Tamagnini, chief executive officer of Fondo Strategico Italiano (FSI), the Italian Strategic Fund that moves like a Sovereign Wealth Fund, is confident that the Italian private equity market will grow quickly because of its enormous potential. More and more medium-sized companies, leaders in their fields, are deciding to go global, increase their size and open their capital to private equity investors.

BUFACCHI: What does “fondo strategico italiano” mean? Is it an Italian sovereign wealth fund?

TAMAGNINI: It's true that FSI is called “fund,” but let me clarify something: it isn't like the typical private equity fund that has a limited time frame. In fact, we're a public company with investment goals with a much longer time frame. We're 80% owned by Cassa Depositi e Prestiti and 20% by the Banca d’Italia. We work independently and according to market logic. To be clear, we don't hand out state aid. We respect the idea of active governance. We recently entered the world club of sovereign wealth funds but we are not even a sovereign fund because we don't use the trade surplus of our country. But we are very similar to a sovereign wealth fund because we invest at market conditions in companies with strong growth potential.

BUFACCHI: So can we say that FSI is a sovereign wealth fund, Italian style?

TAMAGNINI: FSI is like a sovereign wealth fund because it is a patient, long-term investor in the sense that we invest in companies for prolonged periods of time. Moreover we are like a sovereign fund because we only enter sustainable projects: our preliminary in-depth research is a crucial step, they go on for months and we are very rigorous. We buy minority stakes. We invest in Italian companies or foreign companies with a significant presence in Italy. We invest only in healthy companies, that is companies that are financially stable, that are medium to large in size at the national level, that have the objective of growing internationally and have a significant impact on the local economy. That is our main mission. But let me add another thing, we have a second mission that is just as important: attract foreign investment, stimulate interest in Italy on the part of foreign companies and investors that want to invest in our industry. We are ideal partners for foreign investors who want to put risk capital to work in Italy and get an interesting return, but who have not done it yet because they don't know Italy. They can do it through FSI, we are co-investors. That is what happened with Qatar Holding, Kia (Kuwait Investment Authority) and CIC.

Companies’ sizes provide consolitation opportunities

Number of companies per revenues class, > €200 mln (Source: Aida, Diane, Dafne, excl. Insurance, Financial Intermediaries and Banks)

BUFACCHI: In which companies have you invested so far, for how much and what have been the results?

TAMAGNINI: We are a young investor but we have €4.4 billion capital with the goal of reaching €7 billion. In a little more than two years of full activity (we started in September 2012), we have invested and committed capital of €2.2 billion and we have attracted foreign capital to Italy with four agreements for some €2.5 billion, the last of which was the Chinese sovereign fund CIC (China Investment Corporation). Between our capital and the attracted foreign capital we are at €6.9 billion and so we have pretty much reached our first goal of available capital for €7 billion. Up until now, we have invested in Ansaldo Energia (gas and steam turbines, power plants, nuclear engineering), Valvitalia (a world leader manufacturer of flow control equipment for oil and gas), Kedrion (a large operator in the plasma market and one of the top five players in the world), SIA (digitalization of public administration), Trevi group (ground and oil rings engineering) and Metroweb.

BUFACCHI: So there's still a lot to be done.

TAMAGNINI: A lot. Italy is the second largest manufacturer in Europe and the country is rich with champions that are prized in niche markets. We are the fourth country by companies that classify themselves between first and third ranking in the world of export: they are 1,022. But Italy has a structural problem, its companies are often too small to be able to reach international markets with an adequate distribution network. More than 85% of our Italian companies are family owned and nearly 66% are family managed. But many of them are deciding to go to stock market. We can accompany them and prepare them for a listing.

BUFACCHI: It is well known that the family is part of the Italian industrial fabric, that micro businesses are excellent at the micro level. But this is an unsustainable model with globalization. Are Italian entrepreneurs ready to open the gates of their businesses, let institutional investors invest, share the strategic decisions with outside experts, confront themselves with best practice methods, and list themselves on the market?

TAMAGNINI: Yes, undersized businesses are considering opening themselves to risk capital. We at FSI are optimistic. The trend is growing. In less than three years, FSI has met more than 300 Italian entrepreneurs, managers. We are considering investments in 14 sectors that represent about 25% of the Italian GDP. Italy has enormous potential, from this point of view. Private equity investment by GDP in Italy is at 0.10% against the European average of 0.25% (without taking into account the United Kingdom at 0.50%). This means that Italy only has to reach the European average by triplicating the market for private equity.

BUFACCHI: And the future? Other international partners? Other agreements to co-invest with sovereign funds? Other sectors?

TAMAGNINI: We have started a number of contacts. But no comment. I can at least say that we are looking at the tourism sector with a particular focus on the hotel business and food. We hope to be able to announce something soon.

Private equity penetration still low

Private equity investment/Gdp , 2013 (Source: EVCA –All Private Equity, Market Statistics- FSI analysis)